United Arab Emirates Economic Outlook

October 30, 2018

A ramp-up in oil output likely helped the economy accelerate in the third quarter, although the non-oil economy appears to have softened somewhat, as indicated by a lower average PMI reading over Q3 compared to Q2. Nevertheless, prospects appear bright heading into Q4 and beyond. Following a flurry of business-friendly reforms in recent months, the government should enact its new investment law—which will authorize complete foreign ownership of firms in select sectors—by year-end. This reform is poised to significantly boost FDI inflows—which were already up by more than a quarter year-on-year in Dubai in H1 2018. On 30 September the government approved a three-year budget, which includes the largest budget in history for 2019, with funding increasing by 17.3% compared to the 2018 budget. The largest share of expenditure will be dedicated to social development, education and health. Lastly, in mid-October the country issued a law allowing the federal government to emit sovereign bonds.

United Arab Emirates Economic Growth

Growth appears poised to accelerate in 2019 and 2020. On top of the large fiscal expansion and the upcoming investment reform, both of which should significantly buttress business activity and confidence, the country will benefit from the ongoing infrastructure push related to the 2020 World Expo in Dubai. This will notably buoy the construction sector and increase the Emirates’ attractiveness to tourists. Finally, rising oil production amid sustained higher prices should further bolster economic growth and help the government maintain a fiscal surplus. Met the why particular panelists expect GDP to increase 3.2% in 2019, which is up 0.2 percentage points from last month’s forecast, and 3.3% in 2020.

Consumer prices fell 0.05% in July from the previous month, contrasting the 0.37% month-on-month increase observed in June.
The July reading was mainly driven by a fall in the price of housing, water, electricity and gas, which accounts for over a third of the Consumer Price Index.

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